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September 10, 2008

Humiliation for Grade As ITV Set to Lose Place in Elite FTSE 100

by Sam Savage

By Cliff Feltham

The Broadcasting chief Michael Grade faces humiliation today when ITV is booted out of the FTSE 100 index. The shares have lost a quarter of their value in the last three months and are certain to join Carphone Warehouse, Enterprise Inns and miner Ferrexpo in being relegated from the stock market's top flight.

Demotion will be hurtful for Mr Grade, who was para-chuted into ITV, formed by the merger of Granada and Carlton, in late 2006 to transform its fortunes. But a collapse in advertising revenue has undermined his efforts and left it as a bid target - although at the moment there are no takers.

The quarterly reshuffle of the index is announced tonight based on yesterday's closing prices. All four companies look certain to lose membership of the elite club of the UK's top 100 companies based on their market value.

Shares which move into the FTSE 100 immediately benefit from buying by the big tracker funds which have to hold the stocks in their portfolios.

The changing composition of the index mirrors the shifting fortunes of the companies themselves as well as the structural changes taking place in UK plc. So the UK's second biggest pub operator, Enterprise, has shed 45 per cent of its value - hammered by changes in drinking habits as more people drink cheap supermarket alcohol at home rather than visit their local.

But more fund managers are saying that the FTSE is no longer an accurate measure of the prosperity of UK plc. Mining stocks have gone through the roof on the back of spiralling demand for metals from China and India, and with 11 per cent of the index exercise huge influence over its direction.

Yet those companies are not active within the UK economy. They have chosen to list in London because of its regulatory attractions and its easy access to capital markets.

So as one miner, the Uk-rainian iron ore producer Ferrexpo, prepares to drop through the FTSE trap door after its price touched a 14-month low, it looks certain to be replaced by another, Fresnillo, which owns the world's largest silver mine in Mexico.

As one fund manager said yesterday: "My portfolio is likely to be reshuffled by another miner with an unpronounceable name."

Andy Viner of accountants BDO Stoy Hayward said it was "sad" to see the departure of ITV, which will leave the number of media companies in the index at its lowest level for more than ten years. Others to have been shown the door recently include the Daily Mail Group and the directories group Yell.

"Businesses such as ITV are struggling in this environment, especially with the sharp slowdown in advertising revenue. Those surviving the best include subscription-based operators like BSkyB which have greater security of revenue."

Carphone Warehouse, the third largest broadband provider behind BT and Virgin Media, will exit a year after joining. The housing crisis has resulted in fewer people moving homes and installing broad-band services.

But the newcomers also reflect shifts in economic activity. High fuel prices are forcing more people to use public transport, which has done wonders for the share price of Stagecoach, the leading bus and train operator, up 31 per cent in the last three months.

It is expected to be joined in the FTSE by Autonomy, the software group, which has benefited from the strength of the dollar; Inmarsat, the satellite installation group; Fresnillo, which listed in June.